Australia: Inflation slows below peers - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, notes that the Australia’s main underlying core inflation measures were flat in Q4 from Q3 in quarterly terms (0.4%q/q), suggesting that the impulse for inflation is still significantly below the RBA’s 2 to 3% medium-term target range,  supporting the case for more or, at least, more prolonged accommodative monetary policy.

Key Quotes

“The tradable component remained weak at 0.1%y/y, consistent with ongoing strength in the AUD exchange rate.  The non-tradable component, more indicative of core inflation trends, rose to 2.1%, although this was boosted by an increase in the excise tax on tobacco, and a shift in tobacco from the tradable to the non-tradables category. Tobacco prices rose 13.2%y/y.”

“Furthermore, “market goods and services excluding volatile items” was up 0.5%q/q and only 0.8%y/y.  And, “all groups excluding volatile items” was up 0.3%q/q and only 1.3%y/y.  These lesser watched underlying measures fell further below target.”

“Following the data, June 3mth bank bill futures yields fell 3bp to 1.80%.  Cash rate futures are projecting a slight risk of a rate cut in the first three-quarters of the year, suggest that the RBA is likely stay with a stable 1.5% rate setting for the foreseeable future.”

“Core inflation readings in many other countries, including the USA, UK and Eurozone are exhibiting rising trends.  Given the sharp fall in JPY in recent months, we might expect it to increase soon in Japan.  However, Australian core inflation appears to be in a more protracted slow-patch, suggesting that it may be longer before Australia resumes tightening monetary conditions.”